Financial Accounting Standards Board ORIGINAL PRONOUNCEMENTS AS AMENDED Statement of Financial Accounting Standards No 14UHYLVHG Business Combinations Copyright © 2010 by Financial Accounting Foundation All rights reserved Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Foundation FAS141(R) Statement of Financial Accounting Standards No 141 (revised 2007) Business Combinations STATUS Issued: December 2007 Effective Date: Prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 Affects: Deletes ARB 43, Chapter 1A, paragraph Amends APB 14, paragraph Supersedes APB 16 Amends APB 18, paragraph 19(m) Amends APB 28, paragraph 21 and footnote 3a Amends APB 29, paragraph and footnote 3a Amends APB 30, paragraphs and 20 Supersedes AIN-APB 16, Interpretations No through 39 Adds FAS 2, paragraph 3A Amends FAS 2, paragraph 12 Adds FAS 5, paragraph 7A Supersedes FAS 10 Amends FAS 15, footnotes and 16 Supersedes FAS 38 Deletes FAS 45, paragraph 19 Amends FAS 52, paragraph 101 Adds FAS 60, paragraphs 59A through 59E Amends FAS 68, paragraph 11 Deletes FAS 68, footnote Supersedes FAS 72 Supersedes FAS 79 Amends FAS 86, paragraph Replaces FAS 87, paragraph 74 Deletes FAS 87, paragraphs E15 and E88 Amends FAS 95, paragraph 134(g) Amends FAS 97, paragraph Replaces FAS 106, paragraph 86 Deletes FAS 106, paragraphs 87 and 88 Amends FAS 109, paragraphs 9(d), 11(h), 13, 16, 26, 30, 37, 45(f), 45(h), 48, 259 through 262, 264, 265(e), and 266 and footnotes 9a and 18a Adds FAS 109, paragraph 30A and footnote 8a Replaces FAS 109, paragraph 263 Deletes FAS 109, paragraphs 268 and 269 Amends FAS 113, paragraph Amends FAS 120, paragraph Amends FAS 123(R), paragraph Amends FAS 128, paragraph 59 Replaces FAS 133, paragraph 11(c) Amends FAS 133, paragraph 29(f) FAS141(R)–1 FAS141(R) FASB Statement of Standards Supersedes FAS 141 Amends FAS 142, paragraphs 1, 4, 6, 8, 9, 11(b), 16, 21, 33, 35, 44, 45(c), 48, 50, 52, C2, and F1 and footnotes 3, 6, 7, 9, 11, 14, 18, and 21 Deletes FAS 142, paragraph D11 and footnotes 1, 5, 8, and 25 Replaces FAS 142, paragraph 49 and footnote 24 Adds FAS 142, paragraph 6A Amends FAS 144, paragraphs and D1 Amends FAS 146, paragraph Deletes FAS 146, footnote Supersedes FAS 147 Amends FAS 150, paragraph 16 Deletes FAS 150, footnote Amends FAS 154, paragraphs 2(f) and 24 Amends FAS 157, footnote Amends FAS 159, paragraph 10 Supersedes FIN Supersedes FIN Amends FIN 21, paragraphs 13, 15, 16, and 19 Deletes FIN 21, paragraph 14 and footnote Amends FIN 26, paragraph Amends FIN 45, paragraph 7(c) Amends FIN 46(R), paragraphs 4(h) and 23 Replaces FIN 46(R), paragraphs 18 through 21 and footnote 16 Deletes FIN 46(R), paragraphs C1 and C8 Adds FIN 48, paragraphs 12A and 12B Supersedes FSP FAS 141-1/FAS 142-1 Amends FTB 84-1, paragraph Supersedes FTB 85-5 Affected by: Heading following paragraph 22, and paragraphs 30, 60, 68, 68(j), A107, and G3 amended by FSP FAS141(R)-1, paragraphs A1(a), A1(e), A1(f), A1(k), A1(j), A1(q), and A1(r), respectively Paragraphs 24 and 62 replaced by FSP FAS141(R)-1, paragraphs A1(b) and A1(g), respectively Paragraphs 24A and 65A added by FSP FAS141(R)-1, paragraphs A1(c) and A1(i), respectively Paragraphs 25, the heading following paragraph 25, 63, 72(c), and A62 through A65 deleted by FSP FAS141(R)-1, paragraphsA1(d),A1(d),A1(h),A1(l),A1(n),A1(o), andA1(p), respectively Paragraphs 27 and 77 amended by FSP FIN 48-3, paragraph 13 Paragraphs 44,A126, and D4 through D6 amended byAccounting Standards Update 2010-08, paragraphsA9(a) throughA9(e), respectively Paragraphs 67(b), 68(l), and 70 amended by FAS 165, paragraphs B9(a) through B9(c), respectively Paragraphs E1 and F2 deleted by FAS 164, paragraphs E11(a) and E11(b), respectively Paragraphs E7 and E27(b) deleted byAccounting Standards Update 2010-08, paragraphsA9(f) andA9(g), respectively Paragraph F1 amended by FAS 162, paragraph B3 Other Interpretive Release: FASB Staff Position FAS 141(R)-1 Issues Discussed by FASB Emerging Issues Task Force (EITF) Affects: Nullifies EITF Issues No 85-8, 85-42, 88-16, 88-19, 89-19, 90-12, 92-9, 93-7, 95-3, 95-8, 96-7, 97-8, 97-15, 98-1, 98-3, 99-12, 99-15, 01-3, 02-17, 04-1, and 04-2 and Topics No D-54, D-87, and D-100 Partially nullifies EITF Issues No 90-5 and 90-13 FAS141(R)–2 Business Combinations FAS141(R) Resolves EITF Issues No 84-35 and 86-14 Modifies EITF Issues No 87-12, 87-21, 96-5, 97-2, 98-11, 99-7, 00-19, 01-2, and 02-11 and Topic No D-101 Interpreted by: No EITF Issues Related Issues: EITF Issues No 85-41, 91-5, 02-5, 02-7, 02-13, 04-3, 08-6, 08-7, 09-2, and 09-4 SUMMARY Why Is the FASB Issuing This Statement? The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects To accomplish that, this Statement establishes principles and requirements for how the acquirer: a Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree b Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase c Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination What Is the Scope of This Statement? This Statement applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights This Statement applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for some business combinations It does not apply to: a b c d The formation of a joint venture The acquisition of an asset or a group of assets that does not constitute a business A combination between entities or businesses under common control A combination between not-for-profit organizations or the acquisition of a for-profit business by a not-forprofit organization How Will This Statement Improve Current Accounting Practice? This Statement replaces FASB Statement No 141, Business Combinations This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control Statement 141 did not define the acquirer, although it included guidance on identifying the acquirer, as does this Statement This Statement’s scope is broader than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration By applying the same method of accounting—the acquisition method—to all transactions and other events in which one entity obtains control over one or more other businesses, this Statement improves the comparability of the information about business combinations provided in financial reports This Statement retains the guidance in Statement 141 for identifying and recognizing intangible assets separately from goodwill The main features of this Statement and the more significant improvements it makes to how the acquisition method was applied in accordance with Statement 141 are described below FAS141(R)–3 FAS141(R) FASB Statement of Standards Recognizing and Measuring the Identifiable Assets Acquired, the Liabilities Assumed, and Any Noncontrolling Interest in the Acquiree This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement That replaces Statement 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values Statement 141’s guidance resulted in not recognizing some assets and liabilities at the acquisition date, and it also resulted in measuring some assets and liabilities at amounts other than their fair values at the acquisition date For example, Statement 141 required the acquirer to include the costs incurred to effect the acquisition (acquisition-related costs) in the cost of the acquisition that was allocated to the assets acquired and the liabilities assumed This Statement requires those costs to be recognized separately from the acquisition In addition, in accordance with Statement 141, restructuring costs that the acquirer expected but was not obligated to incur were recognized as if they were a liability assumed at the acquisition date This Statement requires the acquirer to recognize those costs separately from the business combination Therefore, this Statement improves the relevance, completeness, and representational faithfulness of the information provided in financial reports about the assets acquired and the liabilities assumed in a business combination This Statement also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with this Statement) In accordance with Statement 141 and related interpretative guidance, an entity that acquired another entity in a series of purchases (a step acquisition) identified the cost of each investment, the fair value of the underlying identifiable net assets acquired, and the goodwill on each step Statement 141 did not provide guidance on measuring the noncontrolling interest’s share of the consolidated subsidiary’s assets and liabilities at the acquisition date The result of applying Statement 141’s guidance on recognizing and measuring assets and liabilities in a step acquisition was to measure them at a blend of historical costs and fair values—a practice that provided less relevant, representationally faithful, and comparable information than will result from applying this Statement In addition, this Statement’s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer, which improves the completeness of the resulting information and makes it more comparable across entities Assets and liabilities arising from contingencies This Statement improves the completeness of the information reported about a business combination by changing the requirements for recognizing assets acquired and liabilities assumed arising from contingencies Statement 141 permitted deferred recognition of preacquisition contingencies until the recognition criteria for FASB Statement No 5, Accounting for Contingencies, were met This Statement requires an acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at their acquisition-date fair values An acquirer is required to recognize assets or liabilities arising from all other contingencies (noncontractual contingencies) as of the acquisition date, measured at their acquisition-date fair values, only if it is more likely than not that they meet the definition of an asset or a liability in FASB Concepts Statement No 6, Elements of Financial Statements If that criterion is not met at the acquisition date, the acquirer instead accounts for a noncontractual contingency in accordance with other applicable generally accepted accounting principles, including Statement 5, as appropriate This Statement provides specific guidance on the subsequent accounting for assets and liabilities arising from contingencies acquired or assumed in a business combination that otherwise would be in the scope of Statement It requires that an acquirer continue to report an asset or a liability arising from a contingency recognized as of the acquisition date at its acquisition-date fair value absent new information about the possible outcome of the contingency When new information is obtained, the acquirer evaluates that new information and measures a liability at the higher of its acquisition-date fair value or the amount that would be recognized if applying Statement 5, and measures an asset at the lower of its acquisition-date fair value or the best estimate of its future settlement amount FAS141(R)–4 Business Combinations FAS141(R) Recognizing and Measuring Goodwill or a Gain from a Bargain Purchase This Statement requires the acquirer to recognize goodwill as of the acquisition date, measured as a residual, which in most types of business combinations will result in measuring goodwill as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired Statement 141 also required goodwill to be recognized and measured as a residual However, as described below, this Statement improves the way in which an acquirer’s obligations to make payments conditioned on the outcome of future events (often called contingent consideration) are recognized and measured, which in turn improves the measure of goodwill This Statement also includes in the definition of contingent consideration arrangements that give the acquirer the right to the return of previously transferred consideration if specified conditions are met This Statement requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date Under Statement 141, in contrast, contingent consideration obligations usually were not recognized at the acquisition date Rather, they usually were recognized when the contingency was resolved and consideration was issued or became issuable In addition, the issuance of additional securities or distribution of additional cash or other assets upon resolution of contingencies based on reaching particular earnings levels was recognized as an adjustment to the accounting for the business combination, but issuance of shares or distribution of assets upon resolution of contingencies based on security prices was recognized differently This Statement therefore improves the representational faithfulness and completeness of the information provided about an acquirer’s obligations and rights under contingent consideration arrangements A bargain purchase This Statement defines a bargain purchase as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, and it requires the acquirer to recognize that excess in earnings as a gain attributable to the acquirer In contrast, Statement 141 required the “negative goodwill” amount to be allocated as a pro rata reduction of the amounts that otherwise would have been assigned to particular assets acquired This Statement therefore improves the representational faithfulness and completeness of the information provided about both the acquirer’s earnings during the period in which it makes a bargain purchase and the measures of the assets acquired in the bargain purchase What Other Changes Does This Statement Make to Existing Accounting Pronouncements? This Statement makes significant amendments to other Statements and other authoritative guidance For example, this Statement supersedes FASB Interpretation No 4, Applicability of FASB Statement No to Business Combinations Accounted for by the Purchase Method, which required research and development assets acquired in a business combination that have no alternative future use to be measured at their acquisition-date fair values and then immediately charged to expense Therefore, the acquirer will recognize separately from goodwill the acquisition-date fair values of research and development assets acquired in a business combination, which improves the representational faithfulness and completeness of the information provided in financial reports about the assets acquired in a business combination This Statement amends FASB Statement No 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances (Such changes arise through the increase or reduction of the acquirer’s valuation allowance on its previously existing deferred tax assets because of the business combination.) Previously, Statement 109 required a reduction of the acquirer’s valuation allowance because of a business combination to be recognized through a corresponding reduction to goodwill or certain noncurrent assets or an increase in so-called negative goodwill This Statement therefore improves the representational faithfulness of the information provided about the effect of a business combination on both the acquirer’s deferred tax assets and the related valuation allowance and the goodwill and noncurrent assets acquired in the business combination FAS141(R)–5 FAS141(R) FASB Statement of Standards This Statement makes various other amendments to the authoritative literature intended to provide additional guidance or to conform the guidance in that literature to that provided in this Statement For example, this Statement amends FASB Statement No 142, Goodwill and Other Intangible Assets, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use This Statement also eliminates many EITF issues and other interpretative guidance on accounting for business combinations and incorporates the parts of that guidance that remain pertinent Therefore, in addition to improving the guidance provided about accounting for a business combination in the authoritative literature, this Statement makes that guidance easier to use What Is the Effect of This Statement on Convergence with International Reporting Standards? This Statement, together with the IASB’s IFRS 3, Business Combinations (as revised in 2007), completes a joint effort by the FASB and the IASB to improve financial reporting about business combinations and to promote the international convergence of accounting standards Statement 141 and IFRS (as issued in 2004) both required use of the acquisition method rather than the pooling-of-interests method to account for business combinations In this Statement and the revised IFRS 3, the Boards in large part achieved their goal of reaching the same conclusions on the more significant issues involving application of the acquisition method of accounting for a business combination Appendix G describes the substantive differences between this Statement and IFRS (as revised in 2007) One significant difference is the measurement requirements for a noncontrolling interest in an acquiree This Statement requires an acquirer to measure a noncontrolling interest at its acquisition-date fair value IFRS (as revised in 2007) provides the acquirer a choice for each business combination to measure a noncontrolling interest either at its fair value or on the basis of its proportionate interest in the identifiable net assets of the acquiree The Boards’ requirements for recognizing at the acquisition date assets and liabilities arising from contingencies also differ, in part because the IASB decided to carry forward IFRS 3’s requirements for those assets and liabilities on an interim basis, pending completion of its project to revise IAS 37, Provisions, Contingent Liabilities and Contingent Assets What Is the Effective Date of This Statement? This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 An entity may not apply it before that date The effective date of this Statement is the same as that of the related FASB Statement No 160, Noncontrolling Interests in Consolidated Financial Statements FAS141(R)–6 Business Combinations FAS141(R) Statement of Financial Accounting Standards No 141 (revised 2007) Business Combinations CONTENTS Paragraph Numbers Objective Standards of Financial Accounting and Reporting: Scope Key Terms Identifying a Business Combination The Acquisition Method Identifying the Acquirer Determining the Acquisition Date Recognizing and Measuring the Identifiable Assets Acquired, the Liabilities Assumed, and Any Noncontrolling Interest in the Acquiree Recognition Principle Recognition Conditions Classifying or Designating Identifiable Assets Acquired and Liabilities Assumed in a Business Combination Measurement Principle Exceptions to the Recognition or Measurement Principles Exception to the Recognition Principle Assets and Liabilities Arising from Contingencies Exceptions to Both the Recognition and Measurement Principles Income Taxes Employee Benefits Indemnification Assets Exceptions to the Measurement Principle Reacquired Rights Share-Based Payment Awards Assets Held for Sale Recognizing and Measuring Goodwill or a Gain from a Bargain Purchase A Bargain Purchase Consideration Transferred Contingent Consideration Acquirer Share-Based Payment Awards Exchanged for Awards Held by the Acquiree’s Employees Additional Guidance for Applying the Acquisition Method to Particular Types of Business Combinations A Business Combination Achieved in Stages A Business Combination Achieved without the Transfer of Consideration Measurement Period Determining What Is Part of the Business Combination Transaction Acquisition-Related Costs FAS141(R)–7 4–5 6–59 8–9 10–11 12–33 12–19 13–16 17–19 20–21 22−33 23–25 23–25 26–30 26–27 28 29–30 31–33 31 32 33 34–46 36–38 39–46 41–42 43–46 47–50 47–48 49–50 51–56 57–59 59 FAS141(R) FASB Statement of Standards Paragraph Numbers Subsequent Measurement and Accounting 60–66 Reacquired Rights 61 Assets and Liabilities Arising from Contingencies 62−63 Indemnification Assets 64 Contingent Consideration 65 Other Statements That Provide Guidance on Subsequent Measurement and Accounting 66 Disclosures 67–73 Effective Date and Transition 74–77 Income Taxes 77 Appendix A: Implementation Guidance A1–A134 Appendix B: Basis for Conclusions B1–B444 Appendix C: Background Information C1–C36 Appendix D: Continuing Authoritative Guidance D1–D14 Appendix E: Amendments to FASB Pronouncements E1–E46 Appendix F: Amendments to Other Authoritative Literature F1–F40 Appendix G: Differences between FASB Statement No 141 (revised 2007), Business Combinations, and IFRS 3, Business Combinations (as revised in 2007) G1–G3 FASB Statement No 141 (revised 2007), Business Combinations, is set out in paragraphs 1–77 and Appendixes A and D–F All paragraphs have equal authority Paragraphs in bold type state the main principles OBJECTIVE STANDARDS OF FINANCIALACCOUNTING AND REPORTING The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects To accomplish that, this Statement establishes principles and requirements for how the acquirer: a Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree b Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase c Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination SCOPE This Statement applies to a transaction or other event that meets the definition of a business combination in paragraph 3(e) This Statement does not apply to: a The formation of a joint venture b The acquisition of an asset or a group of assets that does not constitute a business (paragraphs D2–D7) c A combination between entities or businesses under common control (paragraphs D8–D14) d A combination between not-for-profit organizations or the acquisition of a for-profit business by a not-for-profit organization FAS141(R)–8 ... 141 (revised 2007), Business Combinations, and IFRS 3, Business Combinations (as revised in 2007) G1–G3 FASB Statement No 141 (revised 2007), Business Combinations, is... the business (or portion of the business) acquired Ms Seidman supports the use of a “transaction price presumption” to simplify the accounting for business combinations FAS141(R)–22 Business Combinations. .. together with the IASB’s IFRS 3, Business Combinations (as revised in 2007), completes a joint effort by the FASB and the IASB to improve financial reporting about business combinations and to promote